ASPs climb quietly to the summit

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An ASP by any
other name:
Doug Farber
says the SaaS
model makes it
easy for people
to try before
they buy.
Photo: Jim
Rice

In the late 1990s, during the tech boom, one of the big ideas
was that of the application service provider, inevitably
acronymised to ASP. ASPs, it was promised, would be the next big
thing.

They would turn the software industry on its head. They would
revolutionise they way we do business. They would move the world
from a product-centric to a services-centric model.

The idea was a good one, or at least seemed to be during the
tech boom, when popular wisdom had it that the internet would
become the universal medium for every business transaction and
every service. "Service", of course, being the S in ASP.

Under the ASP model, software suppliers would not sell software
as a product, where you buy it on a CD-ROM, install it on your own
computer and run it yourself. Rather, the supplier would host the
software and you would access it over the internet, paying as you
went. Whole companies were launched on the ASP model and many
existing vendors announced they would move in that direction. There
were even confident predictions that PCs would die, replaced by
"network computers" that would download applications as they were
needed.

So, where are they now? You could be forgiven if you had never
heard the term ASP, or if you thought that after their initial
hype, they had faded away, victims of the tech crash. You would be
wrong. ASPs are alive and well  we simply don't call them
that any more.

Analyst company Gartner has a handy little model called the Hype
Cycle, which describes the trajectory of many technologies in IT.
Shortly after the idea is conceived, the exposure of a technology
quickly rises to what Gartner calls the Peak of Inflated
Expectations, where everybody is talking about how wonderful the
technology is and what promise it holds, although no one is
actually using it.

Expectations and exposure quickly decline when people realise
that the technology is not all the hype claims it to be. It falls
into the Trough of Disillusionment (with apologies to Bunyan's
"Slough of Despond"). But then, long after the hype is over and
analysts and consultants have moved on to the Next Big Thing, use
of the technology rises up the Slope of Enlightenment to the
Plateau of Productivity, where many people are using it but nobody
is talking about it. It becomes so commonplace it does not bear
comment.

ASPs, and their exposure and use, are a classic example of the
Hype Cycle. When they first hit the radar in the late 1990s they
were vastly overhyped, and many people who should have known better
thought they would change the world overnight.

I remember attending a Sapphire conference for the large and
very staid German software supplier SAP during this period, in Nice
in the south of France. The company's founder, Hasso Plattner, came
on stage to announce SAP's new mySAP ASP direction, complete with
kindergarten colours and typefaces and a kinder and gentler way of
doing things. It was faintly ridiculous to see the serious Teutons
talking in this way, but it showed how the world was changing.

Then the tech crash hit and nobody spoke any more about ASPs
changing the world. We had the granddaddy of all Troughs of
Disillusionment, and many software suppliers struggled to survive.
The ASP model was one of the casualties.

Or so many people thought. Now, five years later, ASPs are
thriving. We don't even think of them as offering a new business
model. The 21st-century term is SaaS, or software as a service.
Quietly, what they are doing has become the norm.

The best example of an ASP, or a SaaS, or whatever they are
called nowadays, is a company called Salesforce.com, which offers
sales force automation (an application unfortunately shortened to
SFA) over the internet. The company was founded in March 1999, at
the height of the tech boom, but unlike many of its contemporaries
it survived the next few rough years.

In June 200,4 Salesforce.com went public, at about the time
going public came back into fashion. While its listing was not as
successful as Google's, it is now trading at nearly twice its float
price. Revenues in its first full year of operation as a public
company exceeded $US200 million, and the company is profitable and
growing.

Earlier this month, Salesforce.com held a conference for its
Australian users, which include AAPT, BOC, Vodafone, Peppers
Resorts and many smaller organisations. It charges on a per-user
per-year basis. This ensures a steady revenue stream and no upfront
costs for the user; always an attractive idea.

"Our model is succeeding in Australia because it's in tune with
the Aussie way of giving it a go," says Doug Farber, head of
Salesforce.com in Australia.

"The SaaS model makes it easy for people to try before they buy.
We want to make using software as easy as buying a book from
Amazon."

Other successful companies following the ASP (sorry, SaaS) model
include NetSuite (backed by Oracle's Larry Ellison) and
24SevenOffice, which offer financial software and other office
applications. Siebel, in the customer relationship management (CRM)
market, is also now offering an ASP version of its software.
Newsletter www.aspstreet.com lists nearly 12,000 ASP (or SaaS)
companies, with total annual revenues exceeding $US12 billion. So
ASPs never went away  they've been growing in our midst all
this time.